Let’s recap the Federal Reserve’s policy for the past 10 years, as we transition into a new era. Following the 2008 crisis, the central bank initiated three QE programs, starting in November of that year, when they pulled the trigger on purchasing $600B of MBS (Mortgage-Backed Securities).

Next, came the 2010, $600B round of bond purchases. Lastly, in 2012, the FED went aggressive and purchased an additional $1.6T in Treasury bonds and MBS, so that in its peak, the balance sheet reached $4.5T.

Since then, the FED hasn’t embarked on further Quantitative Easing, but it kept re-purchasing maturing bonds, providing liquidity, when the markets showed signs of distress. Just like a father would stand behind his baby daughter, as she climbs a ladder in the playground, to make sure no major accidents happen, the FED was there to lend a hand, when the baby was struggling.

It looks like the father now trusts his daughter to go ahead and climb up, overseeing and monitoring from afar, instead of a applying a hands-on approach.

In the parenting world, we don’t call this process “cheating” because we want to see progress, but we’re not in a rush, so we slowly pull back from our meddling, as soon as we detect maturity. In economics, central bank intervention distorts the natural process of competition, since it helps one person over the other.

The rich, who own financial assets and real estate holdings, enjoyed QE programs far more than the majority of the population, who rely on fixed wages.

Well, starting next month, the FED is, essentially, out of the markets, shrinking its balance sheet by an additional $42B, not buying any significant assets at all. This will show us how strong the demand is for U.S. Treasury debt from genuine lenders, as well as for the global economy, since the BOJ (Bank of Japan) and the ECB (European Central Bank) are also taking a step back, removing their hands from their babies, allowing them to develop or regress, on their own.

You have to wonder about the timing of implementing these strategies, right before mid-term elections, just as America has to decide Trump (Republican), who has been a critic of the FED, or Democrats. The market turmoil isn’t helping the Republican cause.

But, any way you look at it, no central bank purchases represents a major change with our economy.